Monday, February 7, 2005

Barack Obama at Naperville Town Meeting

Just got back from Barack Obama’s “listening” event at North Central College. Pfeiffer Hall at NCC was packed, with a good mix of students and residents. Barack got a standing ovation from the auditorium, which he seemed genuinely appreciative of. He took questions for about 45 minutes; the original plan was to stay longer, but a vote got called in the Senate. He left to go directly to O’Hare in order to fly back to DC for the vote this afternoon.

First off, for the record: even though I’m a big fan of technology in general, and its applicability to politics in particular, I was not the guy who asked Barack what he would do to fix spam and viruses. Really. It wasn’t me. Honest.

That surprising question came on the heels of a question about Social Security and gay marriage. His answer on Social Security was pretty powerful — you could see heads shaking. An older couple in front of me looked at each other, mild surprise on their faces, as if to ask, “This is the ‘crisis’ the President keeps talking about?”

He presented it simply: in around 40 years, Social Security will be able to pay out only 75-80% of promised benefits for those who will be of retirement age. So while it won’t be perfect, it won’t be bankrupt either. The President’s plan, as explained by Barack, would divert some percentage of younger wage-earners’ income into “private accounts”, in the hopes that those retirement accounts would earn a higher rate of return than that promised by Social Security. Unfortunately, in order for those younger wage earners (that’d be me) to see a dime of increased benefits under the plan, those private accounts would need to grow 15+% above inflation annually every year until retirement. (Historical average over the past sixty years? About 6-7% growth annually). Why does the gain need to be so high? Because part of the President’s plan to “fix” Social Security is to cut benefits for those far-away retirees by 40%.

But wait — what of the money those younger wage earners aren’t paying into Social Security? That money, which would have gone to current retirees, now is going into private accounts.

And that’s when the other shoe dropped: the President is proposing to borrow a lot of money (I’ve seen differing numbers, Barack claimed $2 trillion) to cover the gap. In other words: to fix something that will be marginally broken in 40 years, we’re going to go further into debt today (at a time when we’re already in debt to our ears), and we’re going to put younger wage-earners in a tenuous investment position where they are almost certain to lose money, and will probably face fewer benefits than they would if nothing were done.

Now — I’m well aware that there’s two sides to this story. Jason does a good job of laying out the Republican argument. I look forward to paying more attention to this issue over the coming months; it’s an important discussion, one which deserves close scrutiny and a lot of questions.

3 comments:

Thanks for the mention. I always enjoying seeing the "Klau-spike" in my stats. :)

It sounds like Barack failed to mention one thing, which I included in my update to the post you cited... those of us "young earners" may have our future SS benefits cut, but the amount we earn in the private accounts will cover those missing "benefits" (eg. checks) and then some. Compare the rates of return. By the time we 30-somethings retire, our SS rate of return will be less than 1% (some even speculate it will be a negative rate of return). That means if the program is slashed by 40%, we're losing .4%. I don't know about you, but my 401k mutual funds are performing much better than that. Even if 10-15% more is needed, we're talking a rate of return around 10% or so. Just check out some fund top performers: Mid-cap growth, Mid-cap value or even the conservative allocation funds.

To say nothing of the ability to pass your investment to your heirs, rather than "use it or lose it". Afterall, why should the government get to keep all the money invested by a producing member of society simply because they died young?

I think the best argument against the proposal is the impact on the current retirees. Someone will always hurt when this flawed system is finally addressed. However, it's been promised they wouldn't be affected now anyway.

Good thing Nicole and I have never counted on SSI existing for us. When we got married we decided to start IRA's and both do the 401k thing when available. Judging from the plans I'm reading, we were right. Too bad, SSI would have made for a nice bonus at age 72+.